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EXHIBIT 10.4
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SERVICE AGREEMENT
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TABLE OF CONTENTS
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Section 1 General Description of Services
to be Provided by TDC . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 Customer Support Services
2.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.02 Transfer of XXXXX Team . . . . . . . . . . . . . . . . . . . . . . . 2
2.03 Severance and Other Liability . . . . . . . . . . . . . . . . . . . 3
Section 3 Warehousing Services
3.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.02 Receiving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.03 Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.04 Stocking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.05 Picking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.06 Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.07 Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.08 MANUFACTURER's Access to Warehouse . . . . . . . . . . . . . . . . . 7
3.09 Inventory Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Annual Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 Title/Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4 Computer Services
4.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.02 Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.03 Computer Services Fees . . . . . . . . . . . . . . . . . . . . . . . 9
4.04 Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.05 Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5 Accounting Services
5.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.02 Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.03 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.04 General Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.05 Accountant Services Fees . . . . . . . . . . . . . . . . . . . . . . 11
5.06 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.07 Sales Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.08 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.09 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 Invoice Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Inventory Accountant . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 Establishment of Standard Cost . . . . . . . . . . . . . . . . . . 14
5.13 Inventory Shrinkage . . . . . . . . . . . . . . . . . . . . . . . . 15
5.14 Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . 15
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TABLE OF CONTENTS
(Continued)
Section 6 Consideration to TDC
6.01 Base Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.02 Other Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.03 Cost Improvements . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.04 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7 Control and Rights of Parties
7.01 Independent Contractor Status . . . . . . . . . . . . . . . . . . . 18
7.02 Employment of Workers by TDC . . . . . . . . . . . . . . . . . . . . 19
Section 8 Insurance
8.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9 Duration and Termination
9.01 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.02 Early Termination . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10 Indemnification
10.01 Indemnity Provisions . . . . . . . . . . . . . . . . . . . . . . . . 20
10.02 MANUFACTURER Responsibility . . . . . . . . . . . . . . . . . . . . 21
10.03 Other Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 11 Trademarks and Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 14 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 15 No Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 16 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 17 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 18 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 19 Governing Law and Choice of Forum . . . . . . . . . . . . . . . . . . . . . 24
Exhibit 1 - Terex Distribution Center Performance Objectives. . . . . . . . . . 26
Exhibit 2 - Schedule of Service Fees . . . . . . . . . . . . . . . . . . . . . 29
Exhibit 3 - TDC System Services Data Center Services . . . . . . . . . . . . . . 30
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TABLE OF CONTENTS
(Continued)
Schedule 2.01 - Xxxxx Team Member Costs . . . . . . . . . . . . . . . . . . . . . . 47
Schedule 2.02 Xxxxx Team Members Employed by TDC
as of November __, 1996 . . . . . . . . . . . . . . . . . . . . . 48
Schedule 3.03 - TDC's Inventory Disposition Procedures . . . . . . . . . . . . . . . 49
Schedule 3.05 - TDC's Picking Procedures . . . . . . . . . . . . . . . . . . . . . . 50
Schedule 4.04 - Computer Contract with Xxxxxx Computer Services . . . . . . . . . . 51
Schedule 5.02 - TDC's Cash Management Procedures. . . . . . . . . . . . . . . . . . 52
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SERVICE AGREEMENT
THIS SERVICE AGREEMENT is made as of November 27, 1996, by and between
TEREX CORPORATION, a Delaware corporation, with its principal offices at 000
Xxxx Xxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxx 00000 ("TEREX") and XXXXX MATERIAL
HANDLING COMPANY (formerly known as CMHC Acquisition Corporation), a
corporation organized under the laws of Delaware with principal offices at 000
Xxxxx Xxxxxx, Xxxxxxxxx, XX 00000 ("MANUFACTURER").
W I T N E S S E T H
WHEREAS, TEREX and MANUFACTURER have entered into a Purchase Agreement
dated as of November 9, 1996 (the "Purchase Agreement") pursuant to which TEREX
has sold and MANUFACTURER has purchased all of the assets of TEREX's Xxxxx
Material Handling Company subsidiary and the stock of various foreign Xxxxx
subsidiaries (collectively, "XXXXX");
WHEREAS, TEREX owns and operates a division with a single facility in
Southaven, Mississippi, the TEREX DISTRIBUTION CENTER ("TDC"), engaged
primarily in the business of aftermarket service parts distribution services
for TEREX's divisions and subsidiaries, including XXXXX;
WHEREAS, MANUFACTURER desires to employ certain employees of TDC for
provision of Customer Support Services (as hereinafter defined) and to retain
TDC for the distribution services required by XXXXX, and TEREX consents to such
retention in accordance with the terms set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows
SECTION 1. GENERAL DESCRIPTION OF SERVICES TO BE PROVIDED BY TDC.
TDC shall provide Customer Support Services, Warehousing Services,
Computer Services and Aftermarket Accounting Services, each as defined herein,
to MANUFACTURER
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during the term of this Agreement to support the distribution of MANUFACTURER's
aftermarket service parts ("Parts") at a level of service that is consistent
with the level of service provided to XXXXX by TDC prior to execution of the
Purchase Agreement.
SECTION 2. CUSTOMER SUPPORT SERVICES.
2.01 General. In consideration of the Base Fees (as defined in
Section 6 hereof), TDC shall permit not more than thirty-five (35)
XXXXX employees (the "XXXXX Team") to work at TDC's facility to
provide XXXXX with Customer Support Services. "Customer Support
Services" to be performed by the XXXXX Team at TDC's facility consist
generally of the purchasing function for all Parts, the material
planning function for all Parts and the provision of customer
service, including technical assistance, to MANUFACTURER's Parts
customers. All members of the XXXXX Team shall comply with all work
rules and safety and other guidelines in effect at TDC's facility.
MANUFACTURER shall be solely responsible for all costs incurred in
connection with the provision of Customer Support Services, including,
without limitation, the salaries and other benefits of XXXXX Team
members and the purchase cost of Parts. Except as explicitly set
forth in this Agreement, TDC shall have no liability for the XXXXX
Team or the provision of Customer Support Services. Attached as
Schedule 2.01 is a list of the costs incurred by the XXXXX Team
members in 1995 and for the first six (6) months of 1996, all of which
categories of costs, as well as any additional costs incurred by the
XXXXX Team members, shall be the responsibility of MANUFACTURER.
2.02 Transfer of XXXXX Team. Attached as Schedule 2.02 is a list
of the members of the XXXXX Team who are employed by TDC as of the
date of this Agreement and their respective salaries and other
benefits. Upon execution of this Agreement, MANUFACTURER shall
arrange for XXXXX to offer employment, on terms comparable to those
currently provided by TDC, to all XXXXX Team members listed on
Schedule 2.02, it being agreed that XXXXX Team members who are on
layoff and who have a right to return to work or who are on short term
(up to six (6) months) medical disability (including pregnancy leave)
are to be considered actively employed but that employees on long-term
medical disability and employees whose employment has
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terminated as of the date of this Agreement without any right to
return to work are not to be considered actively employed. TDC shall
use reasonable efforts to cause the XXXXX Team members to become
employees of XXXXX, which reasonable efforts shall include discussing
terms and conditions of employment with XXXXX and MANUFACTURER and
distribution to the XXXXX Team members of forms and documents relating
to employment with XXXXX. TDC shall deliver to MANUFACTURER and XXXXX
copies of all personnel files relating to the XXXXX Team members who
accept employment with XXXXX.
2.03 Severance and Other Liability. MANUFACTURER shall assume,
discharge, pay and be solely liable for and shall indemnify and hold
TDC harmless from and against all obligation, cost or expense for (i)
any unearned vacation, holiday pay or other fringe benefits relating
to the XXXXX Team members as listed on Schedule 2.02, (ii) any health,
disability or life insurance coverage and any medical and dental
benefits payable after the date hereof, (iii) severance pay,
termination indemnity pay, salary continuation or like compensation
under TDC's plans, policies or arrangements and relating to XXXXX Team
Members, including, without limitation, any claim of constructive
termination due to the transfer to XXXXX or (iv) any other claim or
liability arising out of the employment of the XXXXX Team members by
XXXXX on of after the date hereof.
SECTION 3. WAREHOUSING SERVICES.
3.01 General. In consideration of the Base Fees, TDC shall provide
the Warehousing Services described in this Section 3. Warehousing
Services shall consist generally of receiving Parts purchased by
MANUFACTURER, storing such Parts, identifying such Parts for shipment
to Parts customers, coordinating with MANUFACTURER's packaging
suppliers, packing such Parts and finally shipping such Parts at level
of service which is consistent with the level of service provided as
of the date of this Agreement. To assist TDC in its operational
planning, MANUFACTURER shall provide TDC with its annual sales plan,
updated quarterly to current projections. The
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sales plan may be expressed either in dollars or preferably in the
number of line items by order class.
3.02 Receiving. TDC shall receive all Parts purchased by
MANUFACTURER at TDC's Southaven, Mississippi facility and shall
visually inspect such Parts to insure conformance with the terms of
the applicable purchase order. TDC shall advise MANUFACTURER of any
damage, other irregularity or shortage which TDC observes during its
receiving process, as TDC deems appropriate. The Base Fees do not
include inbound receiving quality inspecting of materials received at
TDC's facility. Any such services may be provided to MANUFACTURER
upon request at additional cost.
3.03 Warehousing.
(a) Parts owned by MANUFACTURER shall be stored by TDC for
warehousing, order fulfillment and distribution. TDC's
procedures for inventory disposition are attached hereto as
Schedule 3.03. Said inventories shall remain the sole
property of MANUFACTURER and shall not be disposed of by TDC
except under procedures in effect as of the date of this
Agreement or as provided for by specific instructions
established by MANUFACTURER.
(b) MANUFACTURER agrees to pay the full amount of any and
all taxes levied or assessed against sales, inventories or
personal property on the premises of TDC.
(c) TDC shall provide MANUFACTURER with sufficient storage
capacity for up to Twenty-Two Million Dollars ($22,000,000) of
Parts (FIFO value at standard cost adjusted for the average
change in annual standard costs) in the possession of TDC
(excluding inventories in transit, at packagers and return
material processors)(the "Capacity Value"). If MANUFACTURER
requires additional Capacity Value, the parties shall
negotiate an increase to the Base Fees. TDC represents that
as of the date of this Agreement, storage requirements for
XXXXX Parts for 1996 has been at approximately Nineteen
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Million Five Hundred Ten Thousand Five Hundred Ninety-three
Dollars (US)($19,510,593).
(d) TDC shall provide sufficient security for MANUFACTURER's
inventories at all times. Said security shall include, but
not be limited to, fire protection systems, hazardous material
storage areas, appropriate bins and racks and controlled
access to TDC warehouse facilities, and shall at a minimum be
at least equal to the TDC security systems, methods and
procedures in effect as of the date of this Agreement.
3.04 Stocking.
(a) TDC shall have the sole responsibility for determining
the stocking location and movement of Parts within TDC's
facility. It is the responsibility of TDC to monitor, track
and control the location of inventories within the custody of
TDC.
(b) MANUFACTURER shall issue timely instructions for the
disposition of any inventory which is being restricted by
MANUFACTURER from sale or normal storage (rejected parts,
unidentified parts, etc.)
(c) Parts received in TDC's facility shall be stored
("putaway") in an appropriate storage area and updated in the
inventory data base within the time periods set forth in Part
A of Exhibit 1. Notwithstanding the foregoing, in the event
that TDC cannot maintain "putaway" and "update" requirements
because of TDC observed holidays or other shutdowns, TDC shall
normalize operations in three (3) workdays for two (2)
consecutive shut down days.
3.05 Picking.
(a) TDC's picking procedures are set forth in Schedule 3.05
attached hereto. All Parts removed from TDC's facility shall
be relieved from the TDC inventory record of Parts delivered
to TDC by MANUFACTURER. MANUFACTURER shall not remove any
Parts or other materials from TDC's facility without
compliance with TDC's procedures.
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(b) Parts orders shall be transmitted by MANUFACTURER to the
TDC warehouse computer between 7:00 a.m. and 7:00 p.m.
(Central Time) on scheduled workdays. The Base Fees do not
include processing of manual orders for which MANUFACTURER
shall pay the additional charges set forth in Exhibit 2.
(c) MANUFACTURER uses a system of Parts order codes which
have different service priorities. TDC shall fill orders
according to MANUFACTURER service objectives and priorities;
provided, however, that TDC shall not be liable for delays due
in whole or in part to MANUFACTURER's delay in payment of Part
suppliers, delays by Part suppliers or packagers or other
events beyond the reasonable control of TDC. Order codes and
their corresponding order fulfillment objectives are specified
in Part B of Exhibit 1. TDC shall maintain sufficient
manpower, equipment and other resources required to obtain the
order fulfillment requirements specified in Exhibit 1 provided
rush order line volumes (Codes 1 and 2, as currently defined)
on any given day do not exceed 150% of the daily line average
over the preceding twelve months.
3.06 Packaging. MANUFACTURER has the primary responsibility for
defining and contracting prepackaging, which shall include reasonable
TDC specifications for handling and storage requirements.
MANUFACTURER shall be responsible for all shipment costs, including
freight, insurance and duty costs incurred in the shipment of
materials to and from the packagers. The Base Fees include the cost
of relabeling, repackaging, or correcting minor packager errors that
do not cause TDC to incur incremental labor or material cost. TDC
shall promptly advise MANUFACTURER of major packager errors. At
MANUFACTURER's request, TDC will correct such errors and charge
MANUFACTURER at the special charges rates set forth in Exhibit 2. The
Base Fees do not include charges for unpacking and restocking canceled
orders, which services shall be performed for MANUFACTURER at the
rates set forth in Exhibit 2.
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3.07 Shipping.
(a) TDC shall arrange for the shipment of all Parts to
MANUFACTURER's customers, including by providing for customer
order pick-ups during normal working hours.
(b) TDC shall provide domestic and export inbound and
outbound transportation services, all rate negotiations, and
have responsibility for reviewing freight and brokerage
invoices for accuracy. Shipping costs are not included in the
Base Fees and shall be paid by checks prepared by TDC and
drawn on MANUFACTURER's account in accordance with the cash
management procedures set forth in Section 5.02 hereof.
(c) TDC shall debit an account designated by MANUFACTURER on
a daily basis to cover the shipping costs incurred as of that
date in accordance with the cash management procedures set
forth in Section 5.02 hereof. TDC shall use commercially
reasonable efforts to consolidate customer orders whenever
possible, unless otherwise instructed by MANUFACTURER.
(d) TDC shall provide outbound packing materials for normal
and Canadian orders not requiring special handling or packing.
Export or special handling or packing may result in additional
fees which shall be invoiced to MANUFACTURER. MANUFACTURER
may request special handling, marking or packing on specific
orders. The incremental costs of these special requirements
over standard packing material costs shall be invoiced to
MANUFACTURER.
(e) TDC shall use packing materials methods and procedures
which will protect materials when handled with normal care
customary for the specified mode of shipment.
3.08 MANUFACTURER's Access to Warehouse. MANUFACTURER and its
employees shall have access to TDC's facility. In addition, TDC shall
make its facility
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available during normal working hours, upon reasonable notice, for
dealer and prospective customers; provided, however, that TDC may, if
it deems necessary to do so, impose reasonable time limits on the
duration and quantity of such visits. The foregoing not withstanding,
MANUFACTURER shall not arrange any warehouse tours of duration beyond
one hour, with any competitor of TDC without prior approval of TDC.
3.09 Inventory Plans. MANUFACTURER shall provide TDC its annual
inventory plan, updated quarterly to current projections, by the end
of the first month of each calendar quarter. The parties shall
establish an annual calendar of operations during each preceding
December which specifies holidays to be observed, annual inventory
dates and any other planned shutdown of regular operations. In
connection therewith, unless otherwise agreed, in no event will TDC
operations be suspended for more than a maximum of two consecutive
workdays.
3.10 Annual Inventory. During the Initial Term (as defined in
Section 9), and for each succeeding twelve (12) month period
thereafter, TDC shall complete a cycle count of one hundred percent
(100%) of MANUFACTURER's inventory. Any inventory discrepancies
discovered shall be investigated on the day the discrepancy is noted.
In addition to ongoing cycle counting, during the Term and each
succeeding twelve (12) month period thereafter, TDC's operations shall
be suspended for a maximum of one and one-half working days for an
annual statistical sample inventory. The parties shall negotiate in
good faith the parameters of the annual statistical sample inventory
at least thirty (30) days prior to commencement of the sample
inventory. TDC shall provide sufficient resources for the annual
statistical sample inventory. The cost of the annual statistical
sample inventory, excluding MANUFACTURER's direct resource costs, is
included within the Base Fees. Prior to a full physical inventory, if
one is necessary, the parties shall agree upon a plan to combine
resources to ensure that the shutdown period does not exceed two (2)
working days. MANUFACTURER shall provide resources, including human
resources, as required for reconciling a physical count, if any, to
the perpetual inventory records. A full physical inventory, if
necessary, may require additional downtime. The cost of a full
physical inventory is not included in the Base Fees.
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3.11 Inventory Records. All Parts removed from TDC facilities must
be relieved from the TDC inventory record of Parts delivered to TDC by
MANUFACTURER. MANUFACTURER will not remove any Parts or materials
from the TDC warehouse without complying with mutually agreed
procedures, which, at a minimum, will provide for adequate inventory
accounting.
3.12 Title/Risk of Loss. Title to the Products delivered by
or on behalf of MANUFACTURER to TDC shall remain vested in
MANUFACTURER until the Products are purchased and delivered to
MANUFACTURER's customers. Except as provided for in this Agreement,
TDC shall not assert or claim any right of ownership in the Products
and shall not encumber, lease, transfer, sell or otherwise dispose of
any of the Products. TDC hereby waives and releases any right, claim,
interest or lien in and to the Products that may arise by operation of
law. In addition, TDC shall not possess or acquire any interest,
whether directly or indirectly, in the accounts arising from such
sales, and all invoices for such sales shall be mailed for the account
of MANUFACTURER to the persons purchasing the Products in accordance
with the provisions of this Agreement. Except for inventory shrinkage
in reasonable and customary amounts as set forth in Section 5.13
hereof, TDC shall bear the risk of loss with respect to the Products
stored at TDC's facility.
SECTION 4. COMPUTER SERVICES.
4.01 General. In consideration of the Base Fees, TDC shall provide
Computer Services, as defined in this Section 4, to support the
aftermarket operations of MANUFACTURER at the levels currently
provided by TDC to XXXXX. The systems provided by TDC under this
Agreement are as specified in Exhibit 3.
4.02 Availability. TDC shall provide on-line (CICS) availability
of the systems between 7:00 a.m. and 7:00 p.m. (Central Time), Monday
though Friday, excluding previously schedules non-working days
(collectively, the "prime hours"). In the event of non-scheduled
system downtime during prime hours, TDC agrees to provide non-prime
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time on-line CICS availability of duration and timing that allows the
MANUFACTURER and TDC backlog of on-line transactions, caused by system
downtime, to be made current as soon as feasible. TDC shall maintain
average on-line system availability during CICS prime hours at a
minimum of ninety-eight percent (98%). MANUFACTURER and TDC have an
objective of average on-line availability of nine-nine percent (99%).
4.03 Computer Services Fees. Computer Services are included in the
Base Fees. Any different or additional services shall result in
additional charges which shall be invoiced to MANUFACTURER.
4.04 Capacity. TDC agrees to provide central processing capacity
(CPU capacity) and storage capability (DASD) to meet the
MANUFACTURER's requirements defined in this Agreement. TDC represents
that the CPU capacity to which it has access pursuant to any agreement
between TDC and Xxxxxx Computer Services attached hereto as Schedule
4.04 is sufficient to meet its obligations under this Agreement. If
additional equipment is required as a result of an increase required
in storage capacity or annual gross sales volume in excess of Eighty
Million Dollars, MANUFACTURER shall be invoiced for the additional
cost.
4.05 Telecommunications. TDC will provide at its own expense
telecommunications to MANUFACTURER at the level existing as of the
date hereof. Any additional telecommunications capability shall
result in additional charges to be invoiced to MANUFACTURER.
SECTION 5. ACCOUNTING SERVICES.
5.01 General. In consideration of the Base Fees, TDC shall provide
MANUFACTURER with aftermarket Accounting Services as defined in this
Section 5.
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5.02 Cash Management. TDC and MANUFACTURER shall comply with the
cash management procedures set forth in Schedule 5.02 hereof to ensure
timely payment of all amounts due by MANUFACTURER.
5.03 Records. Accounting records of the MANUFACTURER aftermarket
operations shall remain the exclusive property of MANUFACTURER and
shall not be provided to any third party by TDC, without the prior
written permission of MANUFACTURER, except as may be required by final
order of a relevant court or otherwise authorized pursuant to this
Agreement. MANUFACTURER hereby authorizes TDC to provide TEREX and
TEREX's accountants, lawyers and other representatives with any
accounting information reasonably and customarily requested by those
parties and necessary to comply with applicable laws and financial
disclosure requirements or to ensure TDC's fulfillment of its
obligations under this Agreement.
5.04 General Ledger. TDC shall maintain general ledger account
records in accordance with generally accepted accounting practices
(GAAP) for MANUFACTURER's aftermarket operations for all activities
supported by TDC.
5.05 Accountant Services Fees. The Accounting Services described
in this Section 5 are included in the Base Fees. Upon request, TDC
shall quote prices for additional aftermarket accounting, forecasting
and budget records or services. The Base Fees do not provide for any
major change from current specifications or interface requirements for
the transmittal of accounts receivable date and provides for a maximum
of one hundred (100) ledger accounts.
5.06 Operations. TDC shall close each monthly accounting cycle by
5:00 p.m. on the fourth business day of the following month, and
provide MANUFACTURER with summary financial statements by the close of
business on the fifth working day of the following month. The parties
agree that in order
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for TDC to comply with the preceding requirement, certain month-end
accruals may contain estimates. In such event, TDC, with information
from MANUFACTURER if required, shall adjust estimated accruals to
actual amounts during the next accounting month. This Agreement
provides for a MANUFACTURER fiscal year ending each December 31st.
TDC shall reconcile all MANUFACTURER general ledger balance sheet
accounts to the appropriate ledger detail quarterly, except for
inventory accounts reconciled annually as part of the physical
inventory process. TDC shall review reconciliations with the
MANUFACTURER's Controller. In the event unreconciled differences are
encountered, TDC shall promptly investigate the cause and recommend
appropriate remedial steps for implementation following MANUFACTURER
approval.
5.07 Sales Transactions. TDC shall prepare invoices for shipments
to MANUFACTURER customers on behalf of, and in the name of,
MANUFACTURER, at prices specified by MANUFACTURER. Records of sales
transactions shall be entered directly into the MANUFACTURER accounts
maintained by TDC. MANUFACTURER shall provide TDC with current export
and domestic customer prices. TDC shall prepare invoices at said
amounts unless otherwise advised by MANUFACTURER. TDC shall invoice
shipments no later than the batch run on the day following shipment,
unless otherwise agreed. Shipments not invoiced by the close of
business on the last day of each month shall be accrued as sales
during the month when shipment was made. TDC shall transmit
MANUFACTURER's accounts receivable information to a location
designated by MANUFACTURER.
5.08 Invoices.
(a) MANUFACTURER is responsible for approving the issuance
by TDC of any required debit or credit memo to a MANUFACTURER
customer. MANUFACTURER shall adhere to established inventory
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accounting procedures acceptable to TDC, when processing such
memos. Any failures by MANUFACTURER to comply with the
established procedures shall void any TDC guarantees of
inventory shrinkage to the extent that such failure has a
direct impact on inventory shrinkage.
(b) MANUFACTURER may ship parts directly from a vendor to a
customer ("ship direct transactions"). TDC shall account for
ship direct transactions under procedures in effect as of the
date of this Agreement, or as otherwise agreed in writing.
(c) TDC shall maintain a current record of MANUFACTURER's
customers. Within this record will be kept all pertinent
accounting and billing information that the systems allow, as
of the date of this Agreement. MANUFACTURER is responsible
for promptly notifying TDC, in writing, of any customer record
modifications.
5.09 Accounts Payable.
(a) TDC shall promptly process payment of vendor invoices
for MANUFACTURER under mutually acceptable procedures, as
specified herein. MANUFACTURER shall instruct its vendors to
include the appropriate MANUFACTURER purchase order number and
MANUFACTURER part numbers on each invoice. TDC shall process
all invoices for Parts purchased by MANUFACTURER for inventory
when said invoices agree in price, quantity and terms of the
appropriate MANUFACTURER purchase order, and there is a
corresponding receiving record in the MANUFACTURER's inventory
accounts.
(b) Processing invoices meeting the conditions set forth
above under clause (a) does not require the prior review by
MANUFACTURER. The parties shall agree on a specific dollar
variance tolerance to the purchase
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order terms and receiving records, under which TDC my expedite
the processing of invoices, without prior authorization from
MANUFACTURER. In the event that MANUFACTURER does not provide
instructions to TDC for processing invoices not complying with
this Subsection within five (5) working days, TDC shall
process a net payment equal to the MANUFACTURER purchase order
price times the quantity received as per the MANUFACTURER's
receiving records. Invoices paid in variance to the current
MANUFACTURER standard cost shall be accounted for under the
procedures in effect at the date of this Agreement, or as
mutually agreed upon from time to time.
(c) TDC shall process payment to MANUFACTURER's vendors
within the terms and conditions defined in the MANUFACTURER
purchase orders by preparing checks drawn on an account held
and designated by MANUFACTURER. The checks will be mailed
promptly by TDC personnel through the US mail, or as otherwise
agreed by both parties. Checks delivered by other than US
mail may be subject to additional fees. MANUFACTURER shall
notify TDC in advance of its intent to modify or deviate from
its standard terms and conditions.
(d) TDC shall maintain the active vendor records in the
accounts payable system. MANUFACTURER is responsible for
promptly notifying TDC of vendor records modifications.
5.10 Invoice Inquiries. TDC shall receive initial inquiries from
MANUFACTURER vendors directed to TDC regarding requests for payments,
perform reasonable investigation, and promptly inform MANUFACTURER of
situations where TDC has insufficient basis for processing the payment
vendor invoices.
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5.11 Inventory Accounting. TDC shall account for all MANUFACTURER
inventories within the possession of TDC and within the possession of
mutually agreed upon prepackagers. TDC shall record in the
MANUFACTURER ledgers MANUFACTURER's estimates of the material
in-transit, as well as inventory reserves for obsolescence and
shrinkage.
5.12 Establishment of Standard Cost. MANUFACTURER shall establish
standard costs once per year. No change in any MANUFACTURER standard
cost can by made without the knowledge of the TDC controller. If
MANUFACTURER changes any standard cost without the written approval of
the TDC controller, any TDC guarantees concerning shrinkage shall
automatically be canceled for that inventory year. The procedures and
schedule for the annual standard cost change shall be finalized in a
timely manner, both parties agreeing to the terms and conditions
outlines therein; otherwise procedures utilized in the prior year
shall apply.
5.13 Inventory Shrinkage. TDC shall compensate MANUFACTURER for
inventory shrinkage in excess of reasonable and customary amounts, as
defined by the formula set forth in Part C of Exhibit 1; provided that
MANUFACTURER complies with the standard cost rules specified in this
Section 5 as well as other applicable provisions of this Agreement.
MANUFACTURER agrees to comply with TDC's established procedures and
practices in place as of the date of this Agreement, of inventory
related transactions, and to require their packagers to do the same.
MANUFACTURER agrees that any errors or omissions made by MANUFACTURER
personnel or MANUFACTURER's packagers are the responsibility of
MANUFACTURER and are not covered by this Subsection 5.13. TDC agrees
that any errors or omissions made by TDC personnel or agents of TDC
are the responsibility of TDC, except for appropriate correction for
prior entries under GAAP.
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5.14 Financial Reports. TDC shall provide accounting information
and reports similar to the reporting as of the date of this Agreement
to permit MANUFACTURER to monitor is aftermarket operations to the
extent they are accounted for by TDC services. TDC agrees to comply
with any reasonable modifications to existing reports, as may be
requested by MANUFACTURER. Any major modifications are subject to
negotiations.
SECTION 6. CONSIDERATION TO TDC.
6.01 Base Fees.
(a) For all services provided hereunder through December 31,
1996, MANUFACTURER shall pay TDC a monthly fee of Four Hundred
Sixty-Six Thousand Six Hundred Sixty-Seven Dollars (US)
($466,667)(the "1996 Monthly Fee"), which amounts shall be
payable on the first business day of each calendar month, in
arrears, by wire to an account designated by TDC. The 1996
Monthly Fee shall be payable on December 31, 1996. In the
event that this Agreement commences on a date other than the
first business day of a calendar month, the 1996 Monthly Fee
for the balance of the first full calendar month shall be
prorated based on the number of calendar days in such month
and payable on the first business day of the calendar month
immediately following the first full calendar month of the
Agreement.
(b) For all services provided hereunder from January 1,
1997, through expiration of the Term, MANUFACTURER shall pay
TDC a monthly fee of Four Hundred Ninety Thousand Dollars (US)
($490,000) (the "Monthly Fee"), subject to credit as a result
of Cost Savings (defined below) as provided for in Section
6.03, which amounts shall be payable in arrears by wire to an
account designated by TDC on the first business day of each
month for the immediate preceding month.
(c) The 1996 Monthly Fees and the Monthly Fees are
collectively referred to herein as the "Base Fees." The
parties acknowledge and agree that the Base
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Fees were computed based on a Capacity Value of $22,000,000, a
current annual gross sales volume of $79.3 million for XXXXX
Parts as well as on the level of services currently provided
by TDC to XXXXX as set forth in this Agreement. In the event
that the gross sales volumes for the Term exceeds $79.3
million, the Base Fees paid during the Term shall increase by
5.8% of the excess of the gross sales for the Term over $79.3
million. Such additional amount shall be payable within
forty-five (45) calendar days following expiration of the
Term.
(d) The Base Fees do not include any amounts for provision
of Customer Support Services, including, without limitation,
amounts due MANUFACTURER's vendors or to or as a result of or
incurred by XXXXX Team members, or amounts for Part
transportation, including shipping, insurance or duty costs,
or the amounts due to MANUFACTURER's outside packagers, each
of which shall be paid directly by MANUFACTURER to the
applicable third party.
6.02 Other Costs. In the event that MANUFACTURER requires different
or additional services, MANUFACTURER shall be invoiced for such
services at the rates set forth in Exhibit 2.
6.03 Cost Improvements. TEREX, TDC and MANUFACTURER shall use
their commercially reasonable efforts in the ordinary course of
business to identify and implement productivity and other improvements
to reduce TDC's cost of distribution of the Parts, including all
Warehousing Services (as defined in Section 3 hereof), Computer
Services (as defined in Section 4 hereof), Accounting Services (as
defined in Section 5 hereof), and any additional services required by
MANUFACTURER as provided under Section 6.01. Commencing January 1,
1997, TDC and MANUFACTURER shall share on a pro rata basis in any
"Cost Savings" (as such term is defined below) achieved by TDC in the
distribution of the Parts, with TDC to retain forty-six percent (46%)
of the amount of the Cost Savings and fifty-four percent (54%) of the
Cost Savings to be passed on to MANUFACTURER by means of a credit to
the Base Fees payable by MANUFACTURER under Section 6.01. TDC shall
calculate the amount of the Cost
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Savings on a quarterly basis, with any credit due to MANUFACTURER to
be applied against the Base Fee due for the second month of the
following quarter. For purposes of this Agreement, the term "Cost
Savings" shall mean the net reduction to TDC in the full cost of
distribution of the Parts, including the costs of all Warehousing
Services, Computer Services, Accounting Services and any additional
services provided under Section 6.01, calculated utilizing a
consistent accounting procedure agreed upon by the parties. The
parties shall mutually agree upon a method for calculating Cost
Savings no later than ninety (90) days from the date hereof.
MANUFACTURER or its designee shall have the right to audit all of
TEREX's and TDC's books and records relating to the distribution of
the Parts at TDC, upon ten (10) days advance written notice, for the
purpose of confirming the extent of any Cost Savings achieved by TDC,
provided MANUFACTURER shall not have the right to conduct such an
audit more than twice in any 12-month period. In the event that
MANUFACTURER or its designee should find that TDC has not complied
with the terms of this Section 6.03, TDC shall promptly reimburse
MANUFACTURER for the amount of any Cost Savings due to MANUFACTURER,
with interest calculated at 10% per annum, from the date such Cost
Savings would have been credited to the Base Fee in accordance with
the terms of this Section 6.03. The auditing fees and expenses
incurred by MANUFACTURER or its designee shall be borne by
MANUFACTURER.
6.04 Transfer. In the event MANUFACTURER does not elect to renew
this Agreement, TDC shall upon request, without any additional expense
to MANUFACTURER, (i) extract all data and information in the format in
which such data and information exists on TDC's systems and provide
such data and information to MANUFACTURER, and (ii) pack all of
MANUFACTURER's Products in storage at TDC's facility and prepare such
Products for shipment to a location designated by MANUFACTURER,
including marking each package with the part number and quantity, and
(iii) load MANUFACTURER's Products onto truck or other vehicles
provided by MANUFACTURER for transport. The fees set forth in this
Section 6 are exclusive of any other transfer costs, including,
without limitation, the freight cost of transporting Products to
MANUFACTURER's facility. Upon request, TDC shall prepare a written
quotation for converting MANUFACTURER's data and information to
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a format compatible with MANUFACTURER's system at TDC's actual cost
and other transfer services excluded from the fees set forth in this
Section 6.
SECTION 7. CONTROL AND RIGHTS OF PARTIES.
7.01 Independent Contractor Status. Neither TDC nor its employees
shall be deemed to be agents or employees of MANUFACTURER. It is
understood and agreed that TDC is an independent contractor acting for
its own account. Other than as expressly set forth herein or as
approved in writing by MANUFACTURER, TDC is not granted any express
or implied right or authority to assume or create any obligation or
responsibility on behalf of or in the name of MANUFACTURER or to bind
MANUFACTURER in any manner whatsoever. MANUFACTURER is interested
only in the results obtained under this Agreement; the manner and
means of conducting the work are under the sole control of TDC. None
of the benefits provided by MANUFACTURER to his employees, including,
but not limited to, compensation insurance and unemployment insurance,
are available from MANUFACTURER to the employees, agents or servants
of TDC. TDC will be solely and entirely responsible for his acts and
for the acts of its agents, employees, servants and subcontractors
during the performance of this Agreement. MANUFACTURER shall be
solely responsible for its acts and for the acts of its agents,
employees, servants and subcontractors, including, without limitation,
the XXXXX Team members, during the performance of this Agreement.
7.02 Employment of Workers by TDC. TDC shall furnish duly qualified
and trained personnel to carry out the services to be provided under
this Agreement, and shall, at all times, enforce strict discipline and
maintain good order among the workers performing the work, and shall
cause the workers to observe all reasonable fire prevention, safety
and health regulations in force at TDC's facility. MANUFACTURER shall
use best efforts to ensure that members of the XXXXX Team observe all
such regulations in force at TDC's facility.
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SECTION 8. INSURANCE.
8.01 General. TDC shall obtain and maintain insurance during the
term of this Agreement with solvent and reputable insurance carriers
of such types and in such amounts as is customarily maintained by
prudent businesses, including, but not limited to, business
interruption, public liability, fire and extended coverage, automobile
and workers' compensation coverage and shall provide MANUFACTURER, at
least annually upon request, with a certificate of insurance issued by
the relevant carrier(s) as to the types and amounts of such insurance
which TDC then has in effect. TDC shall name XXXXX as an additional
insured to TDC's business interruption insurance. The cost to TDC of
maintaining the insurance required by this Section 8.01 is included in
the Base Fees.
SECTION 9. DURATION AND TERMINATION.
9.01 Term. The "Term" of this Agreement shall be for thirty-six (36)
months commencing on the date hereof and expiring on November 30,
1999, unless earlier terminated for default in accordance with Section
9.02.
9.02 Early Termination. This Agreement shall terminate
automatically and without further action by either party upon the
occurrence of any of the following events:
(a) TDC or MANUFACTURER becomes insolvent or involved in
receivership, bankruptcy or other insolvency or debt relief
proceedings, whether voluntary or involuntary, or indicates
(or its accountants indicate) that a substantial doubt
exists as to its ability to continue as a going concern; or
(b) upon one hundred twenty (120) days' written notice to
the other party, if such other party (i) materially breaches
any material monetary term of this Agreement and such breach
or failure is not remedied within ten (10) calendar days
after notification thereof by the terminating party or (ii)
fails to fulfill any of its non-monetary
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obligations under this Agreement and such breach or failure
is not remedied within sixty (60) days after notification
thereof by the terminating party.
SECTION 10. INDEMNIFICATION.
10.01 Indemnity Provisions. MANUFACTURER shall defend, indemnify,
and hold harmless TDC from and against any and all claims, damages,
losses and expenses, including without limitation, attorneys' fees, that
may be asserted against TDC and related to the design, manufacture,
material content or use of any MANUFACTURER products. MANUFACTURER
further agrees to defend, indemnify, and hold harmless TDC from and
against any and all claims, damages, losses and expenses, including
without limitation, attorneys' fees related to the procurement or sale
of MANUFACTURER inventories, except where such liability results from
the gross negligence of TDC, in which case TDC agrees to hold
MANUFACTURER harmless from any such liability to third parties. In no
event shall TDC be liable for any loss of profit incurred by
MANUFACTURER or any other party as a result of the telecommunications
circuits or data processing, including data base information or
processing programs, except as specified in this Agreement. TDC shall
defend, indemnify and hold harmless MANUFACTURER from and against any
and all claims, damages, losses and expenses, including, without
limitation, attorneys' fees, that may be asserted against MANUFACTURER
by a third party, for any willful or grossly negligent acts or omissions
of TDC in the performance by TDC's officers, agents, employees or
subcontractors of TDC's obligations hereunder.
10.02 MANUFACTURER Responsibility. MANUFACTURER is solely
responsible for complying with state and federal product "right to know"
disclosures as it relates solely to MANUFACTURER inventory and agrees to
hold TDC harmless from any liability to third parties directly related
to the failure of
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MANUFACTURER to observe such laws or regulations in connection
therewith. MANUFACTURER shall provide TDC with the appropriate
information required by these laws or regulations.
10.03 Other Damages. In no event shall either party be liable to the
other party for any indirect damages including consequential, incidental
or special damages or loss of profit.
SECTION 11. TRADEMARKS AND TRADE NAMES. MANUFACTURER grants to TDC the
nonexclusive, personal, and nontransferable right to use MANUFACTURER's
trademarks and trade names solely to the extent necessary to enable TDC to
comply with its obligation hereunder but only in accordance with the terms of
this Agreement. TDC shall not use such marks or names or any other trademark
or trade name now or hereafter used by MANUFACTURER as part of any corporate
title, business identity or trade name or any similar xxxx or name without
MANUFACTURER's prior written consent nor make use thereof in any manner likely
to lead to confusion or in any way deceive the public or be injurious to
MANUFACTURER . TDC agrees that all such trademarks and trade names are and
shall remain the sole and exclusive property of MANUFACTURER and that upon
termination or expiration of this Agreement, TDC shall immediately cease any
use thereof and shall not thereafter, either directly or indirectly, use such
trademarks and trade names.
SECTION 12. CONFIDENTIALITY. TDC acknowledges that MANUFACTURER may make
available to TDC valuable know-how, technical or other proprietary information
with respect to the sale, distribution and servicing of Parts as well as
promotion and advertising know-how and sales and merchandising information.
TDC undertakes to ensure that its employees, if any, will keep such information
and know-how confidential during and after the term of this Agreement.
SECTION 13. FORCE MAJEURE. Neither party shall be responsible to the
other party for the performance of any obligation to be performed under this
Agreement due to any cause beyond the control of or occurring without fault of
such party, including, but not limited to, acts of God, fires, floods, storms,
riots, strikes, lockouts, other national calamities, wars, insurrections or any
other occurrence, including governmental action, which would act to delay or
interrupt
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implementation and continuation of the performance of this Agreement. If
there is a delay of more than six (6) months due to any cause beyond the
control of one party, then either party may by notice to the other terminate
this Agreement.
SECTION 14. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if sent
by facsimile (confirmed in writing) or internationally recognized overnight
delivery service, prepaid, addressed as follows:
To MANUFACTURER:
XXXXX MATERIAL HANDLING COMPANY
000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
Fax: (000) 000-0000
with a copy to:
CITICORP VENTURE CAPITAL LTD.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
To TDC:
TEREX WORLDWIDE PARTS DISTRIBUTION CENTER
0000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: President
Fax: (000) 000-0000
with a copy to:
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TEREX CORPORATION
000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Senior Vice President and General Counsel
Fax: (000) 000-0000
Other addresses as may from time to time apply shall be furnished by a like
notice by either party during the term of this Agreement. Any notice or
communication shall be deemed effective when actually delivered (or the next
business day if delivered after regular business hours or on a Saturday, Sunday
or holiday).
SECTION 15. NO WAIVER OF RIGHTS. The failure of either party to require
performance at any time by the other party of any obligation under this
Agreement shall not affect the right to require performance of that obligation
at any time thereafter. No waiver of any breach of any provision of this
Agreement shall be construed as a waiver of any continuing or succeeding breach
of such provision or a waiver or modification of any other rights or remedies
that such party may have under this Agreement.
SECTION 16. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by either party hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party, except that TDC may assign any and all of its rights and
obligations under this Agreement to any entity controlling, controlled by or
under common control with TEREX or to the purchaser of all or substantially all
of the assets or business of TDC without the consent of MANUFACTURER. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement, express
or implied, is intended to confer on any person other than the parties hereto
or their respective heirs, successors, executors, administrators and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 17. INTEGRATION. This Agreement contains the entire understanding
of the parties hereto and supersedes all prior or contemporaneous agreements,
oral or in writing, with respect
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to the subject matter hereof. This Agreement may not be amended nor any
provision waived without a written agreement signed by the party against whom
such amendment or waiver is sought to be enforced.
SECTION 18. SEVERABILITY. If and to the extent that any court of competent
jurisdiction holds any provision of this Agreement or part thereof invalid or
unenforceable, such holding shall in no way affect the validity of the
remainder of this Agreement.
SECTION 19. GOVERNING LAW AND CHOICE OF FORUM. This Agreement shall be
governed by and interpreted in accordance with the laws of Mississippi
exclusive of its conflicts of law provisions. Any actions, suits or legal
proceedings of any nature arising out of or relating to this Agreement shall be
initiated in the courts of Mississippi.
IN WITNESS WHEREOF, this Agreement is executed, in counterparts, by
authorized representatives of MANUFACTURER and TDC.
TEREX DISTRIBUTION CENTER, a
division of TEREX CORPORATION
By: /s/
---------------------------
Title:
------------------------
XXXXX MATERIAL HANDLING
COMPANY
By: /s/
---------------------------
Title:
------------------------
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EXHIBIT 1
TEREX DISTRIBUTION CENTER
PERFORMANCE OBJECTIVES
The performance levels listed in this Exhibit reflect MANUFACTURER's Parts
business service objectives and form the standards against which the TDC
performance is to be measured.
A. PUTAWAY AND UPDATE REQUIREMENTS
- Normal materials putaway = 5 workdays after TDC receipt.
- N.P.O. (No Purchase Order), N.P.N. (No Part Number) and N.S.C.
(No Standard Cost) shall be processed in accordance with
MANUFACTURER's instructions within 48 hours following
MANUFACTURER's notification of disposition to TDC.
NOTE: Attainment of the above objectives assumes unrestricted flow
of inbound material. TDC will advise MANUFACTURER of any
non-controllable event which might extend inbound performance
objectives.
B. OUTBOUND ORDER PROCESSING (Level of service is determined by the customer
per the purchase order.)
- Code I orders transmitted to the TDC facility between 7:00
a.m. and 7:00 p.m. (Central Time), Monday through Friday,
shall be shipped same day at the departure time of designated
or available carrier/transportation.
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- Code II orders transmitted to the TDC facility between 7:00
a.m. and 7:00 p.m. (Central Time) shall be shipped the day
following receipt of order transmittal by customer designated
carrier.
- Code III orders transmitted to the TDC facility between 7:00
a.m. and 7:00 p.m. (Central Time), Monday through Friday,
shall be shipped within three (3) working days of receipt of
the customer's release date.
C. CONTROL AND ACCOUNTING FOR INVENTORY ASSETS
TDC shall provide levels of control and security over inventory assets
under its care consistent with Xxxxx accounting guidelines in effect as of the
date hereof. The parties agree that in a volume related aftermarket parts
business, a certain level of inventory shrinkage is normally accepted as a
"cost of doing business" for which appropriate financial reserves are
established.
MANUFACTURER shall be responsible for inventory gain or loss due to
shrinkage to the extent of one percent (1%) of the standard gross cost of goods
sold for the twelve (12) months prior to the annual inventory. TDC agrees to
be responsible for inventory variations in excess of one percent (1%) of the
standard gross cost of goods sold provided that and subject to the following:
a. For the purposes of applying the formula, the following
definitions will be used:
BASE = [1%] X [12-MONTH GROSS COST OF SALES]
- If physical inventory loss (Loss) exceeds the Base:
PENALTY = LOSS - BASE
- If physical inventory loss is less than Base, or if
there is a physical inventory gain (Gain):
CUSHION = BASE - LOSS OR BASE + GAIN
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b. A "cushion" can be carried forward up to two years to reduce
or offset "penalties" otherwise owed to MANUFACTURER.
c. A "penalty" paid to MANUFACTURER can be recovered by TDC for
up to two years for amounts up to subsequent "cushions."
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EXHIBIT 2
SCHEDULE OF SERVICE FEES
The fees set forth in this Exhibit 2 are for services not included in the Base
Fees. The Actual Hourly Cost shall be calculated by first, multiplying the
applicable employee's hourly rate ($9.60 through May 1997 and probably three to
four percent (3%-4%) higher for the balance of 1997) times 1.5 (the overtime
rate) and second, multiplying the total calculated in the first step by 1.33
(the fringe rate) and third, by multiplying the total by the actual time spent
performing the function. The Actual Hourly Cost does not include any
management supervision costs, which costs are included in the Base Fees.
SPECIAL CHARGES:
Special Packing = Actual Hourly Cost plus material
Return to Stock
Canceled Order -- Not Invoices = Actual Hourly Cost
Canceled/Returned Order--Invoiced = $ 5.00/line plus freight
Rework = Actual Hourly Cost
Teardowns = Actual Hourly Cost
Kit Assembly = $ .10/piece in kit plus
($10 minimum per Kit run) = $ .25/pound
Detailed materials inspection = Quoted
Scrap destruction/defacing = Quoted
Misc. Office/Whse Supplies = Quoted
Priority Carriers = Per carrier invoice
Manual Shippers = Actual Hourly Cost
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EXHIBIT 3
TDC SYSTEM SERVICES
DATA CENTER SERVICES
* PRODUCTION JOB SCHEDULING
* SPECIAL JOB REQUESTS
* TAPE PROCESSING/DISTRIBUTION
* FORMS MANAGEMENT
* REPORT DISTRIBUTION
* SYSTEM TABLE UPDATING
* COORDINATE PROBLEM RESOLUTION RELATED TO EQUIPMENT
(TERMINALS/PRINTERS), TELECOMMUNICATIONS AND HOST
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TDC SYSTEM SERVICES
SYSTEM SUPPORT AND DEVELOPMENT
* PROBLEM DETERMINATION AND RESOLUTION
* SYSTEM ANALYSIS, DESIGN & PROGRAMMING
* PROJECT MANAGEMENT/REPORTING
* EASYTRIEVE SUPPORT
* TECHNICAL CONSULTING
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TDC SYSTEM SERVICES
SYSTEM FEATURES
* INTEGRITY/RECOVERY
- RECOVERY OF DATA DUE TO HARDWARE/SOFTWARE FAILURE
- ROLLBACK FOR TRANSACTION/PROGRAM ABNORMAL TERMINATION
- RECOVERY OF DATA TO PREVIOUS DAY CLOSING IN MAJOR DISASTER
* DATABASE ACCESSIBILITY
- IDIMS
- ONLINE (CICS), BATCH
- SIMULTANEOUS BATCH AND ONLINE UPDATE WITH FULL INTEGRITY
- READ ONLY ACCESS USING EASYTRIEVE
* PRODUCTION DATABASE
* EASYTRIEVE COPY DATABASE (WEEKLY COPY)
- DATABASE MONITORING/TUNING
* ONLINE STORAGE (DASD) MANAGEMENT (CA-1)
* TAPE MANAGEMENT (CA-1)
* INTEGRATED SYSTEM NETWORK ARCHITECTURE
- ABILITY TO COMMUNICATE WITH OTHER TDC SYSTEMS
* PERFORMANCE MONITORING
* SYSTEM SOFTWARE/HARDWARE INSTALLATION/MAINTENANCE
* PROBLEM DETERMINATION/COORDINATION
* SALES COST ACCOUNTING
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
SALES ORDER PROCESSING
SALES ORDER ENTRY
* INTERACTIVE
- CODE I-3
- EXPORT
- INTER/INTRA COMPANY
* BATCH
- FUTURE
- QUOTATIONS
* TABLE DRIVEN ORDER CODING VERIFICATION
* VARIABLE PRICING (DOMESTIC, CANADIAN, EXPORT)
- NET
- LIST
- OEM
- QUOTES
- TRANSFER
FACTOR PRICING IN FUTURE
* REALTIME INVENTORY REDUCTION
* EXPEDITING REPORT GENERATION
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
SALES ORDER PROCESSING
* SHIPPING/PICK TICKET GENERATION
* SHIPPER ADJUSTMENTS
- SHORT SHIPMENTS
- EXPORT AND OEM PRICE REQUIREMENTS
- COMPLETE CANCELS
- SHIPPING INFORMATION
* SALE ORDER INQUIRY
* SALE ORDER CHANGES
- NON-RELEASED CANCELLATIONS (ORDER/PARTIAL QUANTITIES/LINES)
- DUE DATE CHANGES
- SET-UPS (NEW PARTS; ASSEMBLY/COMPONENTS)
- CONTROLLED RELEASES
* TABLE DRIVEN BACK ORDER TO RELEASE
* SALE ORDER COMBINATION FACILITY (STOCK/FUTURES)
* HISTORY BY SALE ORDER CODE/LINES DAILY/MONTH-TO-DATE
- ABC CLASSIFICATION
- BACK ORDERED
- BOOKINGS
- RELEASED, NOT SHIPPED
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
SALES ORDER PROCESSING
* INVOICING
- DOMESTIC/CANADIAN/EXPORT/COST
- MISCELLANEOUS CHARGES
FREIGHT
SALES TAX
TRADE DISCOUNT
RUSH SURCHARGE
PACKING
HANDLING
- AUDIT TRAIL OF BILLING
- INTERACTIVE/BATCH
* REPORTS
- INVOICE REGISTER
- TRANSMISSION STATISTICS OF ACCOUNTS RECEIVABLE
- OPEN ORDERS
- RELEASES PENDING
- CANCELLATIONS
- MANAGEMENT INFORMATION
(COMPANY/DIVISION/SALES DEPARTMENT)
- PRICE/COST NOTIFICATIONS
- STOCK ROOM BACK ORDERS
- INVENTORY
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
PRICING
* PRICING MAINTENANCE
- DOMESTIC/CANADIAN/OEM/EXPORT
- MARKET LEVEL
- COMPETITIVE PARTS
- PROPRIETARY
- ASSEMBLY/COMPONENTS
- MASS UPDATE (BATCH ONLY)
BY-PRODUCT IDENTIFICATION CODE
* PRICING FREE TEXT:MAINTENANCE
- MATERIAL
- SIZE
- WEIGHT
- MODEL
* PRICE/COST HISTORY
* PRIOR 48 MONTHS SHIPPED QUANTITIES
* PRODUCT LEVEL PRICING
* PRICE ACTIVATION/INACTIVATION
* COMPETITOR MAINTENANCE
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
PRICING
* REPORTS
- SIMULATION OF PRICE CHANGES
- VALIDATION OF CHANGES PERFORMED
- PROJECTION/PROFITABILITY ANALYSIS
- PRICE BOOK PUBLICATIONS
- DOMESTIC
- CANADIAN
- EXPORT
- WEIGHTED AVERAGE OF NEW TO OLD PRICE CHANGES
- ESTIMATED PRICE AGING ANALYSIS
- COMPETITOR ANALYSIS
- PRICING FREE TEXT
* COMPLETE INQUIRY OF ABOVE FEATURES
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
SALES FORECASTING (ASI)
* FORECASTING
- AUTO REGRESSION
- EXPONENTIAL SMOOTHING
- CYCLICAL VARIATION
- SEASONALITY
- DEVIATION ERROR TRACKING
* MODEL VARIATION
- SEASONAL
- PATTERNED IRREGULAR
- NON-PATTERNED IRREGULAR
* EIGHTEEN (18) FUTURE PERIODS OF FORECAST
* PARAMETER DRIVEN
- DEMAND FILTERING
- TREND SMOOTHING
- PERMANENT COMPONENT
- SEASONALITY SMOOTHING
- MEAN AND AVERAGE DEVIATION TRACKING
- TREND DAMPENING
- SYSTEM LEVEL FORCING
- FORECAST OVERRIDES
- TWENTY-SEVEN (27) ITERATIONS
- MODEL SWITCHING
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
CREDIT ADMINISTRATION
* ONLINE INQUIRY
* CREDIT/DEBIT ENTRY (BATCH ONLY)
- DOMESTIC/CANADIAN/EXPORT
* DEALER YEARLY RETURNS
* PARTS DISCREPANCY
* REPORTS/FORMS
- RETURN AUTHORIZATION
- RETURN MATERIAL
- MOVE TAG
* TRANSMISSION OF ACCOUNTS RECEIVABLES
* AUDIT TRAIL (60 DAYS ONLINE)
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
DISTRIBUTION REQUIREMENTS PLANNING (ASI)
* TIME PHASED REQUIREMENTS PLAN BASED ON INVENTORY TURN RATIOS AND
CUSTOMER SERVICE LEVELS BY STRATA
* RECOMMENDS EXPEDITE/DE-EXPEDITE ACTION WITHIN THE FREEZE PERIOD
* AUTOMATICALLY RESCHEDULES RELEASED OUTSIDE FREEZE PERIOD
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
PURCHASING
* ONLINE VENDOR FILE MAINTENANCE
* ONLINE PURCHASE ORDER GENERATION/MAINTENANCE
- FIXED QUANTITY
- BLANKET
* DETERMINES BEST QUANTITY AND COST BASED ON EOQ AND VENDOR PRICE BREAKS
* PROHIBITS AUTOMATIC PURCHASE ORDER GENERATION BASED ON SPECIFIC
MANAGEMENT CRITERIA VIA SYSTEM TABLES AND PRODUCES PURCHASE ORDER
CHECKLIST FOR REVIEW AND ACTION
* ONLINE CHECKLIST MAINTENANCE
* AUTOMATIC PURCHASE ORDER GENERATION BASED ON CURRENT INVENTORY
POSITION AND MANAGEMENT CONTROL PARAMETERS
* RECOMMEND BUY HISTORY
* PURCHASE ORDER ACTIVITY AUDIT TRAIL
* EXPEDITE ANALYSIS REPORTING
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
RECEIVING
* ONLINE RECEIVING AT PACKAGERS
* MOVE TAG AND RECEIVING LIST GENERATION
* ONLINE PUTAWAY FUNCTION
* INTERACTIVE UPDATES TO INVENTORY POSITION AND UNAUDITED DATA
* INTERACTIVE SALE ORDER ALLOCATION/RELEASE
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
ACCOUNTS PAYABLE
* ACCOUNTS PAYABLE INVOICE PROCESSING - BATCH/ONLINE
- DOMESTIC
- FOREIGN
* MECHANICALLY CREATES PENDING INVOICE DATA BASE TRANSACTIONS FOR
UNMATCHED RECEIVINGS
* MATCHED INVOICE PAYMENT INFORMATION TRANSMITTED DAILY AND BATCH REPORT
PRODUCED
* ONLINE INVOICE AND VARIANCE INQUIRY/MAINTENANCE
* DAILY CONTROL REPORTING
- AUTOMATIC VENDOR DEBIT ON OVERBILL
- PASSED LIST
- EXCEPTIONS
* MONTHLY CONTROL REPORTING
- VARIANCES RECAP
- MATERIAL RECEIVED, NOT INVOICED
- MATERIAL IN TRANSIT
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
INVENTORY CONTROL
* CALCULATES INVENTORY STANDARDS
- EOQ (right arrow) ECONOMIC ORDER QUANTITY
- SS (right arrow) SAFETY STOCK
* MANAGES INVENTORY THROUGH THE STRATIFICATION OF MATERIAL BASED ON
STANDARD COST EXTENDED, TIMES ORDERED, AND PIECES ORDERED
* INVENTORY BUILDUP PLAN THAT IS CONSISTENT WITH MANAGEMENT SPECIFIED
GOALS (I.E., SERVICE LEVELS AND TURN RATIOS)
* EVALUATION OF THE CALCULATED PLAN VS THE ACTUAL PLAN
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
CYCLE INVENTORY
* RECOUNT SELECTION (TABLE DRIVEN - DOLLAR VALUE)
* INTERACTIVE POSTING
- COUNTS
- ADJUSTMENTS
* ONLINE INQUIRY
* POSTING CYCLE COUNTS
- AUTOMATIC RELEASE/BACK ORDER DEPENDENT ON INVENTORY STOCK POSITION
CHANGE (+ OR -)
* REPORTS
- INVENTORY EVALUATION/COUNTS
- STATISTICAL ANALYSIS
- ROW COUNTS
- LOCATION SUMMARY
- RECOUNT SELECTION
- PHYSICAL INVENTORY RECAP
- CYCLE ADJUSTMENT
* GENERATION OF DATA AND OTHER INFORMATION REQUESTED BY EXTERNAL
AUDITING FIRM
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TDC SYSTEM SERVICES
APPLICATION FUNCTIONALITY
STANDARD COSTS
* ABILITY TO REQUEST/ACCEPT STANDARDS FROM MANUFACTURING PLANTS
* LOAD AND ANALYZE NEW STANDARDS RECEIVED
* NEW STANDARDS-VENDOR (NON-TDC MANUFACTURING) SOURCED MATERIAL
- PURCHASE ORDER COST
- INVOICE COST
- VENDOR PRICE BREAKS
* ONLINE MAINTENANCE AND EDIT CHECKS FOR EXCEPTION CONDITIONS STANDARDS
ANALYSIS
- INCREASES/DECREASES
- DOLLARS
- PERCENTAGES
* NEW STANDARD APPLICATION
- COST HISTORY
- PREVIOUS COST
- YEAR COST SET
* INVENTORY, COMMITMENT AND OPEN SALE ORDER RECONCILIATIONS
* REPORTS
- INVENTORY COUNTS/EXCEPTIONS
- STANDARDS ANALYSIS
- ASSEMBLY/COMPONENT BUILDUP
- UNAUDITED LIST
- AREA COUNTS
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SCHEDULE 2.01
XXXXX TEAM MEMBER COSTS
1ST SIX MON
XXXXX TEAM COSTS 1995 ACTUAL 1996
---------------- ----------- ----
Salaried Labor Costs $942,434 $488,228
Fringe Benefits 212,836 119,280
Outside Training 1,420 3,338
Rentals 1,250 0
Office Supplies 6,894 5,979
Travel and Entertainment 41,743 7,677
Gating and Tooling 5,141 660
Postage and Office Freight 7,597 3,865
Scrap and Rework 16,003 1,999
Other Sundry Expense 1,593 (1,301)
---------- --------
TOTAL $1,236,911 $629,725
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SCHEDULE 2.02
XXXXX TEAM MEMBERS EMPLOYED BY TDC AS OF _NOVEMBER ___, 1996
--------------------------------------------------------------------------------------------------------------
DOH NAME DEPT 1996 EARNED BUT UNUSED ANNUAL
ANNUAL VACATION BENEFIT
SALARY AS OF 11/19/96 COST
(EST)
--------------------------------------------------------------------------------------------------------------
1/16/95 Xxxxxxx, Xxxx 253 30,000.00 E 461.54 9,036.60
1/10/94 Xxxxx, Xxxxxxxxx 253 16,640.00 NE 64.00 9,036.60
1/27/93 Xxxxx, Xxxxx 253 23,600.00 E 0.00 9,036.60
1/9/95 Xxxx, Xxxxxxxx 253 24,675.00 E 0.00 9,036.60
1/9/95 Xxxxxxxxx, Xxxxx 253 30,000.00 E 0.00 9,036.60
6/26/95 XxXxxxx, Xxx 253 30,000.00 E 346.15 9,036.60
1/3/94 Xxxxxxxxxx, Xxxxxxx 253 29,580.00 E 227.54 9,036.60
2/28/95 Xxxxxx, Xxxxx 253 32,500.00 E 1,250.00 9,036.60
11/4/96 Xxxxxxxx, Xxxxxx 253 23,600.00 E 0.00 9,036.60
1/4/65 Xxxxxxxx, Xxxxxx 253 45,103.00 E 886.60 9,036.60
4/10/95 Xxxxxxxxx, Xxxx 253 23,600.00 E 0.00 9,036.60
9/19/88 Xxxxxx, Xxxx 253 20,738.00 E 239.28 9,036.60
11/22/93 XxXxxxxx, Xxxxx 253 23,600.00 E 816.92 9,036.60
12/9/68 Xxxxxxxx, Xxxxxx 253 35,995.00 E 0.00 9,036.60
1/3/94 Xxxxxxxx, Xxxx 253 23,600.00 E 363.08 9,036.60
10/3/88 Xxxxx, Xxxx 253 35,304.00 E 678.92 9,036.60
12/27/93 Xxxxx, Xxxxxx 253 33,660.00 E 1,035.69 9,036.60
9/30/96 Pvillalto, Xxxxxxxx 253 23,600.00 E 0.00 9,036.60
10/16/89 Xxxxxxx, Xxxxx 253 42,000.00 E 1,615.38 9,036.60
1/6/92 Xxxxxxx, Xxxx 253 76,900.00 E 1,478.85 9,036.60
4/10/89 Story, Xxxxx 253 36,240.00 E 0.00 9,036.60
7/5/94 Xxxxxx, Xxxxxxxx 253 16,640.00 NE 0.00 9,036.60
11/22/93 Xxxxxxx, XxXxxxxx 253 23,600.00 E 453.85 9,036.60
11/15/93 Todd, Hunter 253 23,600.00 E 816.92 9,036.60
12/7/93 Xxxxxxxx, Xxxxx 253 33,990.00 E 0.00 9,036.60
-------- -------- --------
TOTALS 759,765.00 10,734.72 225,915.00
========== ========= ============
PART TIME/ TEMP
----- ------ ----
11/19/96 Xxxxx, Xxxxxx 19,760.00 NE
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SCHEDULE 3.03
TDC'S INVENTORY DISPOSITION PROCEDURES
1. A problem with a Part is reported (typically from receiving, the warehouse
help desk, the customer support team, or other warehouse personnel).
2. The inspection department investigates the problem. Full sets of drawings
and inspection equipment and gauges are available to verify that a part
conforms to specifications.
3. Non-conforming material is placed on hold and is unavailable for shipping.
4. An inspection report is written outlining the problem with the Part.
5. The inspection report is reviewed by the Incoming Materials Manager.
6. The Manager determines if the problem can be easily resolved by the
inspection department without further input from other areas (incorrectly
labeled Parts, etc.).
7. The inspection report is forwarded to the XXXXX Team for review.
8. The XXXXX Team (typically a buyer) reviews the rejection and determines
what action should be taken (scrap, return to vendor, rework, etc.).
9. The XXXXX Team records the action to be taken on the inspection report and
forwards the report to the inspection department.
10. The inspection department executes the action requested on the inspection
report.
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SCHEDULE 3.05
TDC'S PICKING PROCEDURES
1. Customer orders are downloaded from the mainframe computer (Xxxxxx) to
TDC's warehouse computer (AS/400).
2. The orders are grouped by the AS/400 into batch picking waves, typically
eight orders per wave.
3. The AS/400 assigns picking locations to the part and schedules any internal
material moves that may be required for the order.
4. Pick tickets are printed for each wave in the picking sequence and grouped
by the warehouse zone.
5. The tickets are dispatched to a picker for a specific warehouse zone.
6. The picker informs the AS/400 when the picking process for a batch begins.
7. The picker processes all of the pick tickets.
8. The picker records any picking discrepancies on a form.
9. Picking discrepancies (if any) are updated on the AS/400.
10. The picker informs the AS/400 that the batch has been completed.
11. Inventory is disbursed from the picking locations and is transferred from
the "perpetual inventory bucket" to the "staged inventory bucket".
12. The picked material is transported to the consolidation area via forklift
or conveyor.
13. Each pick ticket on the picket parts has a bar-code which is scanned as the
material enters the consolidation area.
14. A packing list is generated when all of the parts for an order have been
scanned in the consolidation area.
15. Packers use the packing list to verify that all of the parts have been
picked.
16. The parts are packed into proper shipping containers.
17. A copy of the packing list is attached to the shipping container, the
remainder of the packing list is forwarded to the shipping office.
18. The shipping office completes the appropriate transportation paperwork
(bills of lading, etc.).
19. The shipping office posts the order on the mainframe for invoicing.
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SCHEDULE 4.04
COMPUTER CONTRACT WITH XXXXXX COMPUTER SERVICES
[COPY ATTACHED]
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SCHEDULE 5.02
TDC'S CASH MANAGEMENT PROCEDURES
1. The TDC Accounts Payable Supervisor generates a cash requirements report
for all vendors with invoices that are due within a specified time period.
2. The cash requirements report is forwarded to the XXXXX Xxxx Manager.
3. The XXXXX Xxxx Manager communicates the cash availability to the TDC A/P
Supervisor.
4. The TDC A/P Supervisor coordinates vendor payments with the XXXXX Xxxx
Manager and the XXXXX Team (typically Buyers).
5. Checks are issued on a XXXXX bank account.
6. A check register is printed for the checks generated in a specific day.
The exact cash usage is forwarded to the XXXXX Xxxx Manager on a daily
basis.
7. The TDC General Accountant reconciles the A/P bank account on a monthly
basis.
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